This fourth post in my “If You Can Keep It” series appears at the end of a week that included the first debate in the 2024 presidential election, a debate that has many of those 50 million Americans who watched it wishing that there were some other viable candidate besides the two that have been chosen by the two major parties. It also included a series of supreme court rulings that will require major changes in the way our government functions and could lead to our federal government changing from a democratic republic to a dictatorship.
Those of you who have been following this series so far may decide to spend your time focusing on these other issues for now. I understand that completely. It seems to me as well that a five-alarm fire has broken out in our society. As scary as some recent events may be, there isn’t much many of us can do about them right now. Also, understanding the context and background events that led to the rise of Donald Trump and Joe Biden and the recent supreme court decisions can help you take a longer view and make better decisions about what you ask of your government representatives and who you vote for come November. The goal of this series is to provide that critical background. I hope you will stick around, and if not, that you will come back later in the year (preferably by September) to catch up on the posts you have missed and share them with others, especially people you know who may be undecided or disenchanted about voting this November.
In the introduction I indicated that one current, fundamental problem of American society is that the extremely wealthy have managed to reconfigure the economy and government policies to give them more freedom and take it away from everyone else. As Warren Buffett put it, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” One of the most obvious illustrations is the accelerating decline of rural American life. Most of the people who will read this series likely don’t know much about the vulnerabilities unique to rural and agricultural communities. Because it was so easy for corporate powers to exploit these vulnerabilities, it also makes it easier for me to illustrate trends that, with some variations, affect the rest of us.
My nuclear family has a personal stake in this issue. We have lived in or near farm communities for most of the last 30 years, including 18 years operating our own small horse farms. Reader, you have a stake in this issue as well, because, for better or worse, what happens in these communities affects what you eat every day, the kind of building in which you live, and how you get around.
One of the major virtues needed to thrive in a rural community is self-reliance. Since you have few others nearby you can rely on to supply your needs, you need to learn how to fend for yourself in many difficult circumstances. This principle broadens out as people in a rural area band together. A family living far away from others needs to be able to supply its own needs by relying only on those in the family. A small community group living far away from others needs to do the same. In fact, we are told that human beings lived in small, relatively isolated groups like this for most of human history.
Unfortunately, living with only a small, relatively-isolated group of human beings to rely on is a risky proposition. Not that others in the group are unreliable or malicious, it’s rather that there are too many potential catastrophic events that a small, isolated group doesn’t have the resources to protect one another from. For that reason, most people living in rural areas have depended on resources provided by a larger society for at least some of their critical needs.
Relying on a larger society’s resources to support a rural lifestyle comes at a cost. Put yourself for a moment on a farm several miles outside a village in central Kansas, Nebraska, Iowa, or North or South Dakota. Since you are relatively far away from the larger society, making contact with it is expensive and time-consuming. Not many from a more urbanized environment will be willing to invest the time and money to bring the resources you need. Those who do will aim to be your sole provider. If they can pull that off, they can demand a higher price in exchange for the resources they provide. The technical term for this type of arrangement is a monopoly. or single-seller situation.
Conversely, in order to pay for the resources coming from the outside, you have to trade something you’ve gathered, grown or made. Those who are willing to spend the time and money to buy the items you have for trade will aim to be the sole purchaser. If they can pull that off, they can pay you a much lower price than you would be willing to accept if there were someone else you could sell it to instead. The technical term for this type of arrangement is a monopsony or single-buyer situation.
American government has always been aware of the potential for exploitation of rural citizens by outside entrepeneurs. For example, when the country was very young cross-country travel was extremely difficult. Not having the funds to build and maintain roads, governments relied on private investment for road-building. In order to recoup their investments, the companies that built these roads charged tolls. When the state of Pennsylvania contracted with a private company to build a turnpike between Philadelphia and Lancaster, PA, they set toll prices to prevent the company from charging excessive tolls, since the turnpike was by far the fastest and easiest way to get into the interior of the state.
The twin curses of monopoly and monopsony have frequently plagued the rural inhabitants of North America for hundreds of years. Here is a brief list of examples in roughly historical order:
- the Sioux tribe dominating trade along the Missouri river in the late 18th century. (I bring up this example to illustrate that this is not just a problem with “capitalism.” In no way do I mean to excuse the controversial and often shameful history of European settlement in North America.)
- the American Fur Company purchasing and selling about 90% of all the furs brought to market in the early 1800s.
- the Livingston steamboat monopoly in early 19th century New Orleans.
- rural inhabitants (any many urbanites as well) living in the later 1800s who needed to travel or send or receive freight over long distances often had little choice but to use one of several regional railroad monopolies, such as the Central Pacific, the Pennsylvania or the New York railroad.
Let’s pause at this point to reflect on the railroads. Railroads are a prime example of what is commonly called a natural monopoly. It costs a lot to build track and trains by design can only run on track. If you want trains running in both directions along the same route, you either have to build two tracks or include frequent and long sidings that allow one train to get out of the way temporarily for another train coming down the same track in the opposite direction. The engines, cars, and fuel needed to operate a train are all very expensive. For these reasons, it is impractical for several different outfits to provide similar train service to the same group of customers. Instead, a single railroad company typically built out all the rail lines that served a specific community or region, depending on the size of the railroad company.
In the late 19th century our federal and state governments by and large failed to follow the example of the state of Pennsylvania’s contract with the turnpike company by regulating the rates the railroads could charge their customers. Railroads were allowed to charge customers whatever they could get away with. Furthermore, it became customary for railroads to provide special rebates to certain customers. Most of us are used to this type of differential, “buy-in-bulk” pricing. In the late 19th century, however, the practice came with some shady extras. For example, a railroad company would make a private agreement with, say John D. Rockefeller’s Standard Oil Company, to ship the oil at a huge discount. In exchange, Standard Oil would ship enough oil to occupy an entire train’s worth of freight and handle all the loading and unloading. This arrangement saved the railroad enough to offer the discount without cutting into its own profits. But Standard Oil added a couple of other provisos. The railroad agreed to either a.) not offer the same discounts to other oil producers or b.) not ship oil for other oil producers at all. (By the way, Standard Oil became a monopoly in the oil distribution industry and was broken up by the federal government in 1911 for violating the 1890 Sherman Anti-Trust Act.)
The Theodore Roosevelt administration brought the railroad monopolies to heal with the help of Congress when it passed the Hepburn Rate Bill in 1906. This bill outlawed the type of discriminatory rebates discussed above and set minimum and maximum shipping rates. President Roosevelt made several public speeches in advance of the votes on this bill, arguing that the government needed to step in to regulate the railroad monopolies because left on their own they would continue to reward large corporate customers with special deals and punish small businesses like farmers and consumers with higher prices simply because these customers had no other option. You can read more about Roosevelt’s reasoning in support of federal regulation of railroad shipping rates here.
In the next few posts we will examine how large corporate interests gained monopsony power over farmers and what has happened as a result. We will also explore how Walmart built its retail empire in part by impoverishing small towns. Finally, we will examine how government’s corporate-friendly approach to healthcare has led to the disappearance of healthcare providers in wide swaths of rural America.